Topics:   Risk Management,Strategy

Topics:   Risk Management,Strategy

December 17, 2015

Effective Communications During a Crisis

December 17, 2015

Every company will face a crisis at some point. It could be a government investigation, data breach, product recall, or other significant event. An effective communications strategy can minimize the impact of the crisis and demonstrate leadership’s ability to effectively steer the company. In contrast, an ineffective strategy may worsen a crisis or raise doubts about company leadership.

Directors should confirm that management has an effective communications strategy before a crisis occurs. Although no two crises are the same, thorough preparation can prevent the pressures of a crisis from interfering with the company’s message. When developing a strategy, directors should consider the following guidelines.

1. Establish Clear Lines of Authority and Communication

A crisis will generate media and government interest. To maximize control of the narrative and to ensure that accurate information is conveyed to the public, the company should have a concrete decision-making structure to quickly resolve key questions and prepare meaningful, clear, and truthful responses to media and investor inquiries. Once those questions are resolved with the input of company counsel, a media-savvy spokesperson (which could be an officer) should be designated to deliver the company’s narrative. An individual director, unless designated as the official spokesperson, should respect the company’s established communication channels and resist the urge to respond to inquiries, including those of investors, analysts, friends, professional acquaintances, and reporters.

2. Seek the Advice of Counsel

A crisis can cloud normal decision-making processes. Experienced legal and communications counsel will keep the company focused and help to minimize legal exposure. In consultation with counsel, the company should identify its objectives, create a specific strategy, and ensure that the company is disciplined in working toward its objectives.

3. Set the Narrative But Avoid Premature Disclosures

When a crisis leads to an internal investigation, the company has the advantage of knowing the facts before anyone else. This allows the company to set the narrative. Outside legal and communications counsel are critical resources for advising the company on what information to include in the company’s narrative, as well as when and how to convey it. Once the company decides to disclose information, the company and counsel should carefully script talking points (including answers to possible questions) to avoid miscommunications. The company should deliver all relevant information as soon as possible, thereby avoiding subsequent disclosures that unnecessarily prolong the crisis. Conversely, the company should avoid prematurely disclosing incomplete information or setting unachievable timelines, which may cause investors to lose confidence in company leadership and expose the company to legal liability. Care should be taken to avoid selective disclosure in violation of Regulation FD.

4. Guard Against Leaks

During an internal investigation, there is a risk that information will leak before the investigation is complete. Sensitive information should be shared on a strict need-to-know basis to prevent leaks, and the results of an investigation should not be shared with the public until the investigation is completed. If there are information leaks, the company should resist the temptation to disclose investigative results or information prematurely, which can make the situation worse.

5. Be Accessible

The nature of the crisis may require the company to speak publicly on multiple occasions. In such circumstances, the company should adhere to consistent and truthful talking points aimed at achieving the company’s strategic objectives. Where possible, a willingness to address press reports and allegations–even if merely acknowledging they are being investigated–demonstrates confidence, transparency, and a commitment to effectively resolving the crisis. There are potential pitfalls to addressing the public, however, and the company should consult with experienced legal and communications counsel before each public statement.

6. Be Mindful of Multiple Audiences

Publicly-traded companies have multiple audiences, including regulators, shareholders, and possibly plaintiffs’ lawyers. To achieve its objectives and comply with the law, the company should work with its counsel to develop a coordinated approach that considers how each audience will interpret the company’s statements. If there are parallel government investigations, counsel should make courtesy calls to the government agencies prior to any public disclosures. Additionally, the company should guard against possible Regulation FD violations by avoiding selective disclosures to certain parties such as institutional investors and investment professionals.

7. Be Prepared To Communicate Change

Often a crisis will result in changes to corporate priorities, enhancements of procedures and controls, or removal of key management personnel. Directors may be called upon to communicate significant decisions that could attract the attention of regulators, activist investors, and private plaintiffs. In these situations, outside legal and communications counsel can be effective in crafting communications for the public and for outgoing management that minimize legal exposure and government threats.

Bradley J. Bondi and Bart Friedman are partners with Cahill Gordon & Reindel LLP. They advise financial institutions and global corporations, boards of directors, audit committees, and officers and directors of publicly-held companies in significant corporate and securities matters, with particular emphasis on crisis management, internal investigations, and enforcement challenges. Michael D. Wheatley, a litigation associate at Cahill, assisted with this article.